Daily Market Pulse

Dollar surges as Russia attacks Ukraine

USD

The U.S. dollar index, which measures the greenback's performance against a basket of six major currencies, closed 0.17% higher in the previous session and it extended its gains on Thursday morning. The dollar index rose as safe-haven demand soared following President Vladimir Putin's announcement that Russia will commence a military operation in Ukraine with explosions reported around Ukraine. Putin warned that interference by other countries with Russia's activity would result in "consequences they have never seen." As a result, President Joe Biden criticized the strikes and said he would meet with G-7 leaders on Thursday to discuss additional sanctions against Russia. Meanwhile, investors are keeping a watch on increasing inflation and the Federal Reserve's subsequent rate hikes after Fed governor Michelle Bowman stated on Monday that she will evaluate incoming data before deciding whether a half-point rate increase at the March meeting is necessary. Moving forward, Gross Domestic Product for last quarter as well as Personal Consumption Expenditure Prices will be featured. However, traders remained glued to geopolitical headlines. 

EUR

The Euro closed 0.16% lower yesterday before extending its losses this morning. This comes after Russia launched a strike on Ukrainian cities early Thursday morning, prompting investors to flock to safe-haven currencies as the risk flow decreases. Meanwhile, the Eurozone's annual inflation rate was verified at 5.1% in January 2022, a new record rate and significantly lower than the previous year's rate of 0.9%. Energy continues to be the largest contributor followed by services, food, drink, tobacco, and non-energy industrial products. In other news, the EU50 index of European stocks has reached a 50-week low, mirroring the performance of its Wall Street counterparts. Furthermore, European energy prices have risen as a result of Russian forces attacking several locations in Ukraine in an effort to demilitarize the country. As a counterattack, the West promised more sanctions on Russia.  

GBP

The Pound Sterling closed 0.30% lower and continued to post losses this morning as the risk sentiment worsened. The market was jolted by Russia's military foray into Ukraine. Russian President Vladimir Putin declared an attack on Ukraine amid rumors that Russian troops were crossing the Belarus-Ukraine border and landing on the country's southern coast. Explosions were reported in Ukraine's capital, Kyiv, and the Ukrainian military have confirmed that they have shot down five Russian planes and one helicopter. Traders fear that a war with Russia will raise inflation owing to disruptions in energy and raw material supply and undermining the economic recovery. U.S. President Joe Biden has indicated that the West will impose strong sanctions on Russia. 

JPY

The Japanese Yen closed 0.06% higher in the previous session against the greenback. On Thursday, the Japanese Yen rose against the U.S. dollar and gained almost 1% versus riskier currencies, boosted by safe-haven demand following President Vladimir Putin's announcement that Russia will commence a military campaign in Ukraine, with explosions reported in various cities within Ukraine. Putin also warned that interference with Russia's activity by other countries would result in "consequences they have never seen." Meanwhile, Japan's core inflation rate fell to 0.2% in January, missing expectations and maintaining considerably below the central bank's target. Toyoaki Nakamura, a member of the Bank of Japan's board of directors, has stated that the BOJ will retain its ultra-loose monetary policy in order to help the economic recovery and attain the 2% inflation objective. His remarks echoed those of other policymakers, emphasizing one of the more dovish attitudes among major central banks.

CAD

The Loonie closed 0.28% higher in the previous session before losing its momentum and continues to edge lower this morning. The Ukraine conflict continued to dominate market sentiment, with more countries declaring sanctions against Russia. Canadian sanctions include a prohibition on undertaking financial transactions with the self-proclaimed separate regions of Luhansk and Donetsk, as well as a prohibition on purchasing Russian government debt. Additionally, Ukraine has declared a state of emergency, and the U.S. State Department has cautioned that a Russian invasion of Ukraine is still possible. Meanwhile, Canada's banks are set to record their smallest profit increases in a year and a half before rising interest rates in the coming months are expected to rekindle profit growth. In other news, the Toronto Stock Exchange S&P/TSX composite index fell 0.8% following a positive open on Wednesday, the lowest since January 28th and extending losses for the fifth session in a row.

MXN

The Mexican Peso closed 0.29% higher yesterday before losing its momentum and heading downwards this morning. This follows a period of lower risk appetite caused by Russian attacks on Ukraine. Ukraine has declared a state of emergency and the United States State Department has warned that a Russian invasion of Ukraine remains a possibility. Meanwhile, the Mexican peso was supported by rising interest rates, as Mexico's central bank Banxico raised interest rates for the sixth time in a row in February, bringing borrowing prices to 6%, the highest since April 2020, due to concerns about inflationary pressures. Moving forward, traders will see economic data release from the U.S. docket, however, the focus will remain on geopolitical updates. 

CNY

The Chinese Yuan closed 0.20% higher in the previous session against the greenback. The Yuan rose against the U.S. dollar, reaching its highest level since April 2018, as tensions between Russia and the West increased global demand for the Chinese currency. The new Western sanctions against Russia's financial sector have aided in the acceleration of a trend in which Russian institutions have diversified away from the U.S. dollar and into the Yuan, among other currencies. On Thursday, the Shanghai Composite plummeted 1.7%, while the Shenzhen Component fell 2.2% as mainland equities tracked a worldwide market selloff following Putin's announcement that Russia will commence a military operation in Ukraine and explosions reported in Kyiv, the capital city.

BRL

The Brazilian Real closed 0.82% higher in the last session against the greenback. The Brazilian Real rose at its highest level since June 2021, as higher-than-anticipated inflation bolstered the case for a more hawkish policy stance by the Central Bank of Brazil, which has already warned that it may boost borrowing costs by more than markets expected this year. The annual inflation rate increased to 10.76% in mid-month consumer pricing data, exceeding market estimates and the central bank's objective of 3.5%. Since April of last year, COPOM has increased the main Selic rate by 875 basis points to 10.75%, the highest since April of last year. In other news, the major Sao Paulo market index, the Bovespa, fell 0.8% to 112,008 on Wednesday, owing to growing concerns about global tensions. While Ukraine experienced another widespread cyberattack and declared a state of emergency, investors continued to examine the impact of the first tranche of sanctions imposed on Russia.

 

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